Working Paper: CEPR ID: DP6266
Authors: Alison L Booth; Melvyn G Coles; Xiaodong Gong
Abstract: We model educational investment and labour supply in a competitive economy with home and market production. Heterogeneous workers are assumed to have different productivities both at home and in the workplace. Following Rosen (1983), we show that there are private increasing returns to education at the labour market participation margin. We show that these depend directly on the elasticity of labour supply with respect to wages. Thus the increasing returns to education problem will be most relevant for women or other types with large enough home productivity. We estimate a three equation recursive model of working hours, wages and years of schooling, and find empirical support for the main predictions of the model.
Keywords: Home Production; Labour Supply; Returns to Education
JEL Codes: J22; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor Supply Elasticity > 1 (J20) | Marginal Return to Education (I26) |
| Labor Supply Elasticity < 0 (J22) | Returns to Education (I26) |
| Educational Investment (I26) | Labor Supply (J20) |
| Home Production (D13) | Educational Choices (I21) |
| Skills (J24) | Wage Offers (J31) |
| Wage Offers (J31) | Labor Market Participation (J29) |
| Education (I29) | Working Hours (J22) |
| Education (I29) | Market Productivity (E23) |